DALLAS — Representatives of the city of Olathe, Kan., met Thursday with financial specialists from RED Development LLC in talks to revive a faltering $989 million Legoland amusement park project in the Kansas City suburb.
“We don’t think this is over by any means,” said David Claflin, vice president for communications at the Kansas City, Mo., development company. “We expect to find a middle ground with the city. We’re definitely still interested, and we believe the city is also.”
The Olathe City Council on Tuesday rejected RED Development’s initial proposal that called for public financing of two-thirds of the project’s total cost, exceeding the council’s request for private financing of at least 50%. The council also objected to the lack of a guaranteed revenue stream to support $64.3 million in city general obligation bonds.
Claflin said the original financing plan presented to the council was a preliminary document that is subject to revision during negotiations.
“We call this a pre-development agreement,” he said. “A lot of cities take it with a grain of salt, because there are always a lot of details left up in the air. But we understand why Olathe wants to see a guaranteed revenue stream, and that is in there even if it is not spelled out.”
Olathe spokesman Tim Danneberg said talks are continuing between the city and RED Development.
“We’re still talking with them, and I suspect we’ll be talking a lot over the next few days,” Danneberg said. “But the City Council will be very, very reluctant to use up that much of the city’s GO bond capacity without an assured revenue stream to support the bonds.”
The financing plan rejected by the council called for RED Development and other private investors to contribute $313 million to the project, with a public contribution of $673.2 million in various bonds.
Debt to be issued by the city or a special district would include $64.3 million in GO bonds, $556 million of sales tax revenue, or STAR, bonds, $46 million of transportation district development bonds supported by a sales tax increase of up to 1% within the district, and $4.9 million of tax increment financing district bonds.
Steve Graham, RED vice president for destination development, said the project is being proposed for Kansas because of the availability of STAR bonds.
“Those bonds are an incredibly powerful financial tool for developers in Kansas,” Graham said. “This is a very expensive project, and without STAR bonds, it would not be feasible.”
“Kansas doesn’t have any mountains, we don’t have a beautiful seashore, and we don’t have any great lakes,” he added. “What we do have are the STAR bonds, and that gives us a level playing field when it comes to attracting large tourist projects.”
STAR bonds, which are issued by a city but must be approved by the Kansas Department of Commerce, allows a district to capture the city’s 1% sales tax and the state’s 7% sales tax to support bonds used to build a major retail or entertainment complex.
Graham said transportation district development bonds are usually considered private financing, as the debt is almost always purchased by the developer.
If the company cannot make a deal with Olathe, Graham said, other locations on the Kansas side of the greater Kansas City area would be considered.
“If this park isn’t built in Kansas, it will go to an overseas location,” he said. “We don’t want that to happen, because we don’t want to lose Lego as a client.”
“Give us another five years, and this area will be a bigger tourist attraction than Orlando or Anaheim,” Graham added. “We have an agreeable climate, we are located in a market that stretches from Denver to Chicago to St. Louis and beyond, and we have the STAR bonds.”
